What Does an Extended Lifespan Really Mean in Terms of Retirement Savings?

Here’s a number for you. Half of all babies born in the United States this year will live to age 104 or older. In other words, when a person from that generation hits the typical “retirement age” of 65, they’ll still have 40 years of life left.

Obviously, this represents a major change from where we’re at now.

At age 65, people will have 40% of their life yet to lead. In other words, 65 will become the new 40.

Social Security cannot support everyone having forty years of retirement. It will have to drastically change or go bankrupt. There is no other option. The only way to prepare for this is to assume that Social Security simply won’t be there when you reach retirement age.

Few people will want to “retire” at age sixty five. If 65 is the new 40, people aren’t going to want to retire then. They’re going to want to keep having active, productive lives for many, many years to come after 65.

Thus, the age range for retirement savings will become much longer. People will start targeting their retirement savings to age 80 or 85. Money put into such savings at age 25 will have 55 to 60 years to grow.

When I look at my children, I recognize that these are the facts that their lives are going to hold. How exactly will they plan for the future? What will their lifelong financial trajectory look like? Here are a few elements I see coming down the pike – and they’re certainly going be a part of the advice I give to my children.

First of all, their first career probably won’t be their only career. The idea of the “second career” is slowly becoming more and more mainstream as people reach “retirement” and realize they don’t want to retire. As people’s life spans continue to extend, the idea of a second career will become pretty normal. I expect that many people will work hard at a lucrative “first career” and then move on to a pesonal passion for a “second career” once their major life expenses (a home, children) are taken care of.

What does that mean? Don’t give up on your dreams just because you can’t do them right now. Master living on less than you make so that down the road you can do absolutely whatever you want with your time. Spend your time picking up lots of transferable skills – public speaking, communication skills, time management skills – that will help you in whatever direction your road goes.

Second, retirement planning will move to an even longer scale. Right now, many people calculate their retirement starting at 25 or 30 and ending at 65. The numbers become quite a bit different if you start at 25 or 30 and end at 80. The advantage of starting early becomes even more profound and people won’t have to put away as much each month to hit their numbers.

For example, let’s say you need to have $8 million to retire. You start saving at age 25 for that and you’re putting it in an investment that earns 8% a year.

If you’re retiring at age 65, you need to put away $2,400 a month.

If you’re retiring at age 80, you need to put away only $725 a month.

A longer life span means that you can get away with saving a lot less per month for retirement. The power of compound interest is amazing.

Finally, don’t bank on the government to save you. I offer this advice to everyone out there still in the workforce. Social Security in its current form is unmaintainable. The numbers do not add up. At some point, it is going to have to be radically changed or it is going to have to disappear.

Account for your retirement without Social Security in the equation at all and you’ll find yourself much more secure and happy at retirement time.

“If you’re retiring at age 65, you need to put away $2,400 a month.
If you’re retiring at age 80, you need to put away only $725 a month.
A longer life span means that you can get away with saving a lot less per month for retirement. The power of compound interest is amazing.”

In theory, I agree but, although people will presumably live longer, they may not be able to make money due to various circumstances after 65. I would be pessimistic in making that calculation. Of course the counter-argument would be that not everyone will be reaching that age but still, I would opt for being safe than sorry…

I really liked this Blog article. I felt it was informative, as well as unbiased. I wish I can live to 104 though…lol. The advice on retiring and not counting on social security is a very good tip, … just in case SS goes belly up by the time you reach the golden age of retirement. I am personally saving a good portion of my earnings from my online review sites, and hopefully it will carry me into the future. Thanks for the Article!
Daniel A

I think you need to include some statistics on the likelihood that people will be able to work until 80 years old. I think the data my show that while people may think they CAN work until 80 years old, that the majority can’t because of health issues. I think it is unwise to put away fewer dollars in your initial years planning on putting away money until your 80 years old. Sounds like a recipe for disaster. I think putting away money planning on retiring at 65 years old or younger is a better plan. That way you have $$$ put aside to handle life’s situation that are bound to all come our way. Just a few thoughts. Hopefully the new generation will be healthier and really can work that long.

Hi, I was just discussing this, not knowing the new life expectancy. I was coming at it from the angle that people will not be able to retire at the traditional 65 because they don’t get jobs as early as our generation. I am being quite broad in my assessment here, but from my observation of the younger people around me, it seems that many are taking alot longer to become self supporting. We left home at 18 and supported ourselves. Now it seems that 26 or so is the new 18. Just a thought, so maybe they don’t have the extra years to save that you mention…..

Amen Trent! While I know this will never happen, it’d be great if Social Security was merely an option, not an enforced requirement. I’d love to have all the dough I’ve put into that garbage socked into my savings account right now! As it stands, I’ll probably never see it again or benefit from the time I spent to make the money in the first place.

OK, I understand that SS is a Ponzi scheme, but have we forgotten the recent crash? Lots of people with market-invested retirement plans found themselves in trouble. In my own case an AAA rated bond went down to nothing.

I graduated college a few years ago, and I am working retail because the economy is… anyway, I recently ran into my AP Econ teacher from high school while working my retail job. She was supposed to retire two years after I graduated- but she has been working other jobs ever since, taking a year to teach inner city school kids, working in an office for a while- keeping busy until her husband retires in 2015. I think I was supposed to be impressed that she is still so active and interesting, but all I could think was- please actually retire so I can have your job.

How in the world are young people supposed to get jobs when the retirees won’t go away?

I’m very skeptical of this research that life expectancy for today’s children is over 100 years. ThoughI’ll admit I haven’t looked at how they came up with that number. Life expectancy is increasing but not that fast.

@Jennifer: Your approach assumes that there are only a given number of jobs to go around. This isn’t correct. The more people doing useful things the better. What is bad for society is having people retire and draw benefits paid for by taxes on the workers!

I don’t mean to sound snotty, but I don’t believe you. I don’t believe life expectancy is going up. I have read the exact opposite. I have read that due to obesity life expectancy is going down. I personally believe it isn’t changing very much. I do agree with you that social security is not going to be there. It shouldn’t be relied on.

I remember sitting in Amer Govt class as a senior in ’88 and being told by the teacher & student teacher that SS probably wouldn’t be there for us when we retired. Hope my classmates were listening. Scary how right they were.

Oh…Amen to Jennifer! With respect moom, school systems DO TOO have a finite number of jobs to go around. I subbed and temped 4 years waiting for a big batch to retire locally. 2008 was the year, but the economy crashed that fall, and many stayed b/c their retirement plans took too big a hit & they needed a few more years to make it up. Several of the few retirees’ positions weren’t re-filled…staff was shuffled to keep appropriate ratios, but the job existed no more.
Now, it is good that some work longer and pay into the system longer, but at some point it’s more cost effective for a company to hire a younger, cheaper worker (less SS revenue coming in unfortunately).

Actually, there is a different projection that says our children will not live as long as we will… that this is the first generation when children will not live as long as their parents. The reason is that obesity rates among the young are alarmingly high.

People may still have 40 years of life ahead of them, but they’ll still have 65 year of life behind them – 40 of them slaving away for “the man.” They’ll be MORE than ready to sign off and leave the rat race. They may keep some part time work just to keep themselves busy, but for all intents and purpose, they’ll be fully and completely “retired.”

I disagree what you’ll see many (any?) 65 year olds saying, “I’ve got 40 years left, time for a new career!” I expect that personally, my wife and I will be more than ready to substantially exit the workforce and begin living life on OUR terms. We’ll be on permanent vacation, traveling and lounging, doing whatever we want. That might include SOME work, but it won’t be anything anywhere near resembling the preceding 40 years, in terms of intensity.

As someone who is really interested in making predictions using inferential and theoretical statistical models, I really want to know where they got 104 years and what that really means… I’m gonna have to call this non-news really. Sounds like awful extrapolation and a LOT of assumptions.

I absolutely agree with others – youth obesity is a problem and will probably lower the life expectancy :/

A few people already mentioned what I was thinking- that kids today are projected to have shorter lifespans than their parents. If we can change our lifestyles to keep that from happening, that’ll be amazing (and I hope we will), but 104 seems like a big jump.

An interesting perspective. I do agree that people will have different career paths as they journey through the trenches of life and understand the bottom line which is “start saving now or you will be poor later on”. The life span number is way off and do not know many 25 year olds who even make 2400 month never mind trying to put away that amount .

I agree with Kevin that most people would prefer not to work, and will retire when they can. Some will get bored and may choose to supplement their income with a part-time job, or a hobby that produces income. But you certainly can be active and fulfilled without working for money.
But I do not see retirement as a time to kick up, travel and lounge. First off, I see that many of my elderly relatives who lived until their 90s didn’t have adequate funds. This includes one great aunt who was the wife of a prosperous doctor. And she didn’t travel or otherwise live lavishly. These relatives received additional government help (like fuel assistance) and small amounts of help from family. Mainly, they didn’t have enough to adequately maintain their homes, and over time their houses lost much or most of their value. So I don’t think you ever know if you have enough. Especially because SS is in question and, in my opinion, so is the future of medical care.
As a frugal person, when I think about travel, even in the US, I figure any trip anywhere is going to cost me at least $100 per day (gas, food, lodging) and I don’t know what is worth seeing for $100 (or way more) per day.
Beyond that it seems to me, that my kids’ generation is getting shafted. So while I can now afford to take expensive trips, I’m instead banking this money to minimize the odds I will have to ask them for help. But mainly, I want to leave them as much as I can when I die.
What to do with myself instead? Why help them, of course. We don’t give them cash, but we give them huge amounts of time babysitting, renovating a house, rewiring yard-sale lamps, making furniture, growing and preserving food for them, and so on. This summer I am yard saling with my daughter who has a new baby and a new-to-her house (that we are renovating). I sit in the back seat and navigate while also entertaining the baby. I sit in the car while she goes to the sales, me skipping most sales. In this way, she can hit the most sales possible in a day. I do this because I want to support her in being thrifty. It is really fun just to watch her get good deals. She is fully embracing frugality, and that is exciting for me.
I will give my kids my time this as long as they are reasonably responsible with their time and money, don’t abuse it and are appreciative. This is a win-win, as I will get to see my kids and and grandkids more frequently.
This recession has very clearly diminished their career options and earning potential. I do not see the economy improving for a long time, and maybe never. But thriftiness has/will enable them to greatly improve their standard of living, without earning more money. If we help them, they can achieve that standard of living significantly faster. It is not just about helping them acquire possessions, but also helping them have more time to fully enjoy their own children.

If you’re worried about outliving your retirement income, then you should put your retirement money into a life annuity (or a joint life annuity, if you’re married) with a solid firm like TIAA-CREF or Vanguard. Then take super care of yourselves so that the annuity company loses money on you.

Life is always survival of the fittest, and those who take the best care of themselves have a good chance of making it to 104. In fact, some visionaries (like Aubrey deGrey and Ray Kurzweil) say that if you can survive the next 20 years, you could live forever. At my present age of 79, I’m working hard to make that.

Hi Trent: Why would a sensible frugal person need 8 million to retire? Check out the Extreme Early retirement blog for some alternate ideas on how much is “enough”. I am 55 and hope to retire in two years and live the life of the “gentleman” in a Victorian novel, no longer troubled by commerce, careerism, lucre, petty corporate competition, the banality of organizatinal life. I plan to be devoted instead to the cultivation of my travel, cultural, spiirtual, charitable and literary interests. Work until 80? No way!

You know, I have read a few articles that contradict this. One even said that people born before 1950 had a greater life expectancy than our generation. That was attributed to crap food, all the processed stuff, etc. Child obesity is also a factor.

Also, many people will die from something before they fulfill their life expectancy potential. Lots of people in their 50s-60s die from cancer, heart attacks, etc.

I can understand life expectancy improving wildly from the middle ages to the 21st century. I find it hard to believe it’d raise by *decades* at this point. 104? Come on!

About the numbers Trent used, I agree the 8% might be too high, but the $8 million is likely about right or too low. If we’re talking about somebody being born now and retiring in 60 or 80 years, there’s going to likely be a lot of inflation occurring in that time. (Unless something drastic happens to our society, and then this won’t matter). Sure you don’t need $8 million now to retire. But in 2070 you probably would. At least.

I’m not sure where the 8 million number comes in. Assuming we’ve made 50,000 a year for the last 10 years, and will for the next 20 years, that makes our income for 3 decades $1.5 million. Are you banking that $8 million and just living on the interest? Is that a future retirement guideline? What is the goal for someone retiring in 15 years?

Like some of the other readers, I was initially skeptical of the prediction that half the babies born now would live to 104, but after following the link to the source article, it appears the forecast was made in the very prestigious journal the Lancet, so it can’t be dismissed out of hand. If nothing else, it makes you sit back and think.

As Trent notes, a continuing increase in life expectancy would put increased pressure on Social Security. But I disagree that the appropriate response to that increased pressure is to discount Social Security altogether. While Social Security is certainly not going to continue without modification, it is also not going to disappear altogether.

What is most likely to happen with Social Security is that the retirement age will continue to be increased. As was done in the 1980s when Social Security was modified then, the changing retirement age will be staggered, so younger people are effected more than older people. Someone currently in their 50s will probably see a very modest decrease in their benefit, and people in their 20s will see their benefit fall by 10-15%.

A 10-15% reduction is significant, but it is a far cry from getting nothing. For most people who are in the work force today, Social Security is likely to remain a critical source of funding for their retirement expenses.

It’s important not to underestimate how much things can change in 100 years. People born today who live to be 100 will be living in a world that’s as different from our own as our world is from the world of 1910. I think it’s quite possible that, given whatever innovations occur during that time, the labor of about 40% of the population (those from ages 25-65) will be enough to support a lifestyle for everybody that’s more comfortable than what we’re living today.

What remains to be seen is whether everybody really does get to reap the rewards of those 100 years of progress, or whether their benefits will be concentrated among the very, very rich.

Your blog on extended life and the need for retirement planning is an important one. Clearly Social Security is in trouble and the “balance of payments” went negative not too long ago. In other words, less is coming in than is going out now, which was not supposed to happen for several years. This should be no surprise as SS was designed to kick in at 65 at a time when the average lifespan was lower. Intended as a social safety net, SS has become one of the largest “entitlements” in our country. There are 1/10 the number of workers paying in for each current retiree as there were when SS started and aging Boomers are signing on as fast as they become eligible. The Government can partially control payouts by how they calculate inflation and by using inflation.

Another huge entitlement, (maybe the largest) is the deductability of interest on home loans.

I agree that Gen X and Y kids should not plan on any SS and as an Echo Boomer, wonder about my own benefits. You mention putting money away in an account yielding 8%, but there are very few “safe” investments managed by others that have this kind of yield (name 5 if you would). Professional planners target 4% or so. Many public pension plans are severely underfunded, which may end up in higher taxes for all of us or reduced benefits to all new employees.

We have become a nation of automatons, and most stopped maxing out contributions to pensions when homes became “investments”. The savings rate peaked after WWII and then again in about 1985. It went into negative territory in 2005. At the same time (thanks to HELOCS and Credit Cards) we spent about 127% of our income.

Now that easy credit is gone and millions of homes have negative equity, the 70% of Americans who are living paycheck to paycheck face several years of de-leveraging before they can effectively save to reach the goals needed for an adequate retirement. Very few actually will. Less than 2% of Americans retire at the same income as they earned while working.

We all need to wake up for ourselves and for our children and take far more direct control of our retirement planning. Most Americans spend less time each year on their pension planning and investments than they do planning their vacation.

Try telling a young person they need to save half of their net income for the rest of their lives in order to have a viable retirement.
We can teach by example and show our children by example that planning for the future is important and saving is critical along with taking direct control and responsibility for our own investments.
Wall street money managers are not penalized financially if their investments lose money, except when all or most of it is lost and a fund closes completely. The top hedge fund manager in ’09 was paid $4 billion dollars without having to risk a single dollar of his own money and he got special income tax breaks on his billions.

There are no easy answers, but please start asking the questions about your own situation so that you have the potential to live with dignity.

I don’t think people will prefer to work longer compared to anything else, just compared to the other option (running out of money before you die). As a result of this (having to work for a greater number of years) they will decide to have more fulfilling careers the second time around.

I’ve also been thinking about how wages in the developed world seem to be stagnating but people will have more working years to build up retirement savings.

When SS initially started most people did not live to 65 or much past it. If they had been thinking years ago, as people lived longer, the age 65 for full retirement would have been going up every so many years. It should probably be at at least 70 now. If they had left SS as a retirement only payout that too would have helped. It was never originally meant as a disability payout or as an AFDC payout.
I really disagree about the idea to make SS optional. Most people could not or would not manage a retirement savings plan well. A lot of people would put all their money in high-yield funds that are very unsafe and lose all their money, or some would just not save enough. We can not let people starve so they would be getting government handouts in order to survive. I used to do accounting for a nursing home. A large number of the residents had really tiny SS checks and while living in the community had to depend on subsidized housing and SSI, etc. to survive. Some of the reason was that in their younger years they thought it was smart to work “off the books” and not pay taxes or into SS.
Another possibility is to eliminate payments to the wealthy, who just would be paying it all back in taxes anyway. My former boss was still working into this 70’s and wanted to just not collect SS. He was not allowed to do so. He ended up just paying it all to the gov’t in taxes anyway. Which, of course, freed up SS dollars for use in the general budget.

Most of the general increase in life expectancy is due to the general decrease in infections related to better sanitation and the invention of antibiotics, which are becoming less and less effective. There are a lot of treatments for heart disease and cancer now. The result is that we now have a lot of 80+ people who are being taken care of by 50-70 year olds who don’t have the time or the money to do it. Many of us are still working because our parents have outlived their savings and only have SS to live on and now we have to contribute to their living expenses while trying desperately to save enough for our own retirements, while trying even more desperately to get our own kids educated and out of the house. That is why we are not leaving the workforce anytime soon.

Now picture 100 year olds being cared for by 80 year olds. Now think about how many of these people will be walking around with relatively healthy bodies and utterly demented and unable to cope. It is hard to imagine when you are young and healthy but dying is not the worst thing that can happen sometimes.

Investments: During 2008 every cent I put into my 401K disappeared, along with the money that was already in the 401K. Media said the stock market went down. That money still went somewhere into someone’s pocket. Very few people that I talked to understood that money doesn’t just disappear. It came out of my paycheck, went to my 401K and POOF just disappeared. I still contribute to my 401K, but I really don’t trust it as much as I once did. My best investment now is in good health. I take really good care of my health, and plan on being healthy for a very long time in case I have to continue working.

By the way the numbers for savings you note above are pretty hilarious to me. The 725/month figure when I actually was age 25 was somewhat north of our entire monthly income at the time. The 2400/ month figure is only $600 less than my entire monthly take home pay now. Maybe if I cut the cable and switched to a prepaid cell phone and drive a really used car…….

Looks like 8 million is out of the question for me. Why 8 million? Most of us have no hope of hitting 1 million, but it might have been a more useful calculation.

This would be a funny post if it weren’t so tragic. Are you advocating that people should reconfigure their retirement portfolios based on the assumption that they will work until 80 or 85? How many people have the luxury to decide when they want to retire? The irony is that the ones that have job security are also the ones with the means to retire early – think tenured professors, union members, and government workers. I agree that the retirement system is a mess and is going to get worse going forward, but if you plan on retiring at 80 and get kicked out the door at 65, you’re going to be in a world of hurt.

I remember my grandfather, who died last year at the age of 89, who would tell my family about when SS was passed, everybody laughed at the prospect of getting SS at the age of 65 (or 82). It was just rare for people to live that long. It just didn’t happen that often. Granted, payments into SS were much smaller but the whole system was built on assumptions that were so fundamentally different from “the way we live now” that we simply cannot continue without re-examining those assumptions and acting. But politicians lack the political courage to do so and we as voters punish anyone who even talks about the reality of either reducing benefits or increasing taxes. Something’s gotta give. This is unsustainable, and as long as we refuse to live in the real world, young people are wise to make other plans. At some point the house of cards will fall down.

The $2400/mo. and $725/mo. figures are meant to represent what a person who is born today would be investing in 25-30 years, correct? This doesn’t seem too off-base to me if that’s the case.

I do agree that going from a 78-80 yr. life expenctancy today to 104 for those born today seems off course. I see many people dying today of cancers, complications of diabetes, and heart disease than even when I was younger. Just hard to believe what with everyone being so sedentary and the pollutants in our water and air, and the hormones/chemicals/pesticides in our foods.

First of all the Government raided the Social Security Fund and never repaid it..Thats why its almost broke.
Second of all with the new Healthcare package they are shoving down our throats the Government wants to ( undertreat ) people around 70 , so they can crawl off and die..People over that age will be disposable , so who will make it to 104?
Third and last of all, we dont have any jobs now.The population will keep going up but the job availability will not..
If your aren’t a billionaire and you do make it to 104 I see you either being eliminated or living in abject poverty.
However,when China takes over we will probably be allowed to have only 1 child per family . Maybe thats the plan…….Paula Kastelec

Sevral of my clients are north of 100, and really, I can’t imagine any of them working (they are lucky to be able to stand up!). Also, if it wasn’t for SS, frankly, I’m really not sure where they would be. Frankly, I view the stock market as a Ponzi scheme. Nearly everything we put in during the last 10 years is not there any longer. When we get back up north of 14,000 for the Dow, then I’ll pull all our money out. Yet, that is really all of our only option…Wall St. and government (tax breaks) working together really doesn’t work out well, IMO.

I totally agree with Germond……
These numbers are too fantastic to believe! I personally would not bank on them… working past 80 years? I am far from 67 and quite healthy and frankly I look forward to retirement already!

#30 Joan: You’re right. That money was not “destroyed”. Someone made a killing at your expense. A simple example: Someone bought a stock for 100 several years ago and sold it to you for 250 in 2005. Then, in 2008 the value fell back to 100. Your seller still has the profit of 150.

Social Security can’t go bankrupt and it is going to be around for a long time. The only issue is how productive workers in the future will be. If they are not as productive as the current generation, which appears likely given our disinvestment in productive public infrastructure, then we will all have less, whether working or retired.

Just to replace a $20,000 social security check requires an additional $500,000 in retirement funds. Maybe more depending on your tax situation. In a diversified retirement strategy, social security ought to be seen as the lowest risk part of the portfolio. It really is insurance. It will be there even if you are disabled or the market goes south just when you need the money

As I’ve said before, FDR and his committee fully realized that SS would not be able to fund itself forever and would have to come out of General Revenue. Of course, this is also a dream now because of the state of the economy.

The trouble with SS is that they changed what the payouts were for (as stated above)and that people began to view them as retirement accounts and not as supplements to their own savings. They began to rely solely on SS. This blog is helping us to understand that we must supplement SS, if it is still around, with savins we have done by living frugally.

I took my SS at 65 and worked 4 more years, still contributing and getting raises. I wish now I had waited until I retired. I saved a major amount for me (less than $100k) and am lucky to have SS and 2 small retirements. That way, all my 401k savings goes for home upgrades and more savings. Then, too, I am still trying to save one of the retirements each month, because I realize how costs are going up. This may help my money to last a little longer.

I have always said I would live until I was 123. With the economy in the shape it’s in, I may change my mind and go earlier. That would be another 50 years for me and I’m not certain we’ll even have a country by then. But, as I’m an optimist, here’s hoping we’re still here and kicking.

Seems you are missing the arc of the story. Take that average 20-year-old. The assumption is that all of them will go to college – which less than half do – and those that do will land a job in their chosen field – also less than half do – and they can see the worth of paying for their future rather than paying for their college loans – far less than half do – and those that do invest, will net 8% – without participation in 1982 to 2000 run-up, these new investors will find the return not much better than flat – misses the reality of how most of our lives are lived.

And that leaves the underinvested, the undereducated and underemployed who will skew the investment and employment numbers by eating up more jobs per working adult and worse, by the time they are finished a 40 year working career, will not be able to work much longer – in part because of the physical demands of this lifestyle.

While it is great fun to speculate that those born today will live a century, the truth is that arc does not account for forty years of dependency – 20 at the front and probably 20 at the back-end.

Two additional things to consider about SS:Those that have invested diligently will probably wait until the last possible moment to draw their benefits and those who didn’t invest well, will work longer and wait to draw the program’s benefits.

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